Cases of pension mis-selling have been on the rise for several years now. A significant contributing factor to the problem is ‘contingent charging’. This refers to the practice of a financial advisor only receiving payment if the customer proceeds with transferring their pension.
Here’s further information about why contingent charging has caused so many issues, and about the implication of the ban.
Why is contingent charging so problematic?
On paper, contingent charging looks like a great deal. Rather than the customer paying upfront for financial advice, they only pay if they decide to transfer their existing pension to a new pension product.
For years, it’s been touted as a way of delivering ‘free’ advice to the consumer. However, by incentivising financial advisors in this manner, a conflict of interest occurs. Rather than focusing on the client’s best interests (which might be sticking with their current pension), advisors are encouraging customers to move their pension pot to a product that may not be as beneficial for them – mainly to ensure they earn their fees when the transfer goes through.
What has the impact been?
The FCA believe that several cases of mis-selling have been down to contingent selling, and that in just one year, as much as £12.25bn of pension funds could have been subject to poor financial advice.
They also estimated that this advice, combined with the charges involved with transferring a pension, could have cost the average consumer about £77,000 of their £350,000 pension pot, over the course of their retirement.
Introducing the ban
In a bid to tackle the problem, the FCA have introduced a ban on contingency charging. A spokesperson commented: “By making changes to the way advisors are paid for transfer advice and the other charges to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”
The ban will start on 1st October, 2020, and will require all financial advisors to charge the same sum for pension advice, regardless of whether the customer chooses to transfer their pension or not.
It’s hoped that the ban will reduce the number of people being mis-sold pension products. However, it does mean that you’ll have to pay for pension advice from October, for a defined benefit scheme.
If you’ve been a victim of pension mis-selling, don’t worry; this doesn’t impact your right to make a claim.
Have you experienced pension mis-selling?
If your financial advisor failed to do any of the following, this counts as mis-selling:
- Explain the risks involved with transferring your pension.
- Outline all the charges involved.
- Offer you a range of options.
- Assess your attitude to risk.
If this is the case, you’re in a strong position to seek compensation. Goodwin Barrett have been assisting clients with making successful claims for years; to find out more about how we can help you, get in touch today by calling 0808 163 1659 today or email firstname.lastname@example.org.